Tech gets a power-up

MALAYSIA’S technology sector is poised for another leg of growth as the global semiconductor upcycle broadens and artificial intelligence (AI) spending moves beyond computing power into optical connectivity, advanced packaging and power infrastructure.

The next phase is likely to favour companies with direct exposure to AI and data centre demand, while those tied to traditional end-markets face a more uneven recovery.

Among the key calls, Malaysian Pacific Industries Bhd (MPI) is CIMB Research’s preferred pick with a target price of RM57, while Inari Amertron Bhd carries a target price of RM2.65.

Dagang NeXchange Bhd (DNeX) is TA Research’s top pick at 66 sen, while Inari’s target price has been raised to RM2.70 from RM2.32, although the brokerage retains its “hold” call on the counter.

Hong Leong Investment Bank (HLIB) Research favours UWC Bhd, Inari and Unisem (M) Bhd among technology hardware names, while BIMB Research favours companies exposed to AI-related semiconductors, optical connectivity and proprietary technology, although its ratings are more selective.

The research views come as Malaysia’s semiconductor industry enters a broader phase of recovery, with AI investment increasingly spreading across the value chain.

Bullish and overweight

CIMB Research expects the technology sector to deliver a three-year revenue compound annual growth rate (CAGR) of 10% from 2025 to 2028, with core net profit CAGR reaching 30% over the same period.

Automated test equipment (ATE) is expected to lead the recovery, with core net profit projected to grow at a 60% CAGR, followed by electronics manufacturing services (EMS) at 40% and outsourced semiconductor assembly and test (OSAT) at 20%.

However, the recovery is unlikely to be uniform, with EMS earnings expected to bottom out in 2026 before improving in 2027.

Investor sentiment is also becoming more divided, according to CIMB Research, which recently held meetings with Malaysian and Singaporean institutional investors.

“Domestic investors remain broadly bullish and overweight, encouraged by widening AI exposure across the value chain.

“Overseas investors are more cautious following the sector’s strong share price performance, particularly amid the July 2026 pullback in the Nasdaq and Semiconductor Index,” it highlights.

Still, a potential expansion of the FBM KLCI from 30 to 50 constituents in 2027 could provide a fresh catalyst for Malaysian technology stocks, particularly if more companies qualify for greater index representation.

CIMB Research sees MPI as a key beneficiary of rising AI infrastructure investment, particularly through greater exposure to industrial applications, cloud service provider capital expenditure and general-purpose servers.

Higher content value from power semiconductors in AI servers and the expansion into vertical power delivery are also expected to support earnings, while the acquisition of Carsem Bangkok offers additional growth opportunities in Thailand.

The brokerage also continues to favour ViTrox Corp Bhd for exposure to the ATE segment, supported by strong demand, a new product refresh cycle and tax incentives secured from the Malaysian Investment Development Authority.

Its net margin is expected to rebound in 2026 as newer products contribute more strongly and the effective tax rate declines.

Inari is another preferred name, with CIMB Research viewing it as a laggard compared with domestic OSAT peers.

New radio-frequency content wins and the Inari Semiconductor Lab are seen as key drivers of medium-term earnings expansion and a potential re-rating over financial year 2027 (FY27) and FY28.

Rising sales

The broader semiconductor backdrop remains supportive.

Global semiconductor sales reach US$134.5bil in June 2026, rising 9.7% month-on-month and 123.6% year-on-year (y-o-y), marking the 32nd consecutive month of annual growth.

Second-quarter sales rise 35.1% quarter-on-quarter to US$403.3bil, while first-half (1H26) sales jump 85.5% y-o-y to US$636.6bil.

The AI boom and continued data-centre expansion are driving demand for high-performance logic chips and high-bandwidth memory, which together account for more than half of global semiconductor sales.

Global sales are expected to exceed US$1.5 trillion this year.

TA Research, however, takes a more measured view, maintaining a “neutral” stance on the semiconductor sector despite the strong global growth outlook.

It expects Malaysia’s recovery to be uneven, with companies exposed to AI and data centre infrastructure likely to outperform those with heavier exposure to personal computers and smartphones, where rising memory costs remain a concern.

Its top pick, DNeX, is seen as a local AI proxy through its semiconductor subsidiary SilTerra, which is benefitting from strong order flows for silicon photonics products serving AI and data centre applications.

TA Research also notes that its move to raise the target price for Inari is to reflect a more constructive medium- to long-term outlook.

It expects the optoelectronics segment to gain momentum from next year as AI-driven demand for optical communications accelerates.

Elsoft Research Bhd also receives a higher target price of 32 sen from 27 sen, although the recommendation is downgraded to “hold” from “buy” following its recent share price appreciation.

The target multiple is raised to 30 times from 25 times on expectations of stronger growth from its medical segment.

TA Research maintains its “hold” on Unisem with a target price of RM4.81 and a “sell” on MPI with a target price of RM44.

The main risks include US policy changes, weaker sales, a weaker US dollar against the ringgit and higher commodity prices.

Moving up the chain

The next wave of AI investment is moving beyond chips and computing infrastructure.

BIMB Research says the growth cycle is increasingly being driven by high-speed optical connectivity, AI accelerators, advanced packaging and semiconductor infrastructure.

Its recent checks in Penang point to growing activity in semiconductor design, photonics and advanced packaging, as Malaysia gradually moves towards higher-value activities.

The country’s electrical and electronics exports rose 48.2% y-o-y to RM468bil in the first six months of 2026, with AI-related semiconductor demand and a recovery in global electronics inventories providing support.

BIMB Research highlights the emergence of 800G and 1.6T optical connectivity as one of the more attractive structural themes within the AI value chain.

According to the research house, Inari and EG Industries Bhd are among the companies positioned to benefit from next-generation photonics, while Mi Technovation Bhd is moving further upstream through semiconductor materials and advanced packaging equipment.

BIMB Research rates SkyeChip Sdn Bhd a “sell” with a RM2.17 target price, while Inari is rated a “hold” with a RM2.52 target price. EG Industries and Mi Technovation are not rated.

Diversification and risks

Supply-chain diversification adds another layer of support.

Geopolitical fragmentation and China’s semiconductor self-sufficiency drive are encouraging companies to adopt a “China Plus One” strategy, with Malaysia benefitting from its established semiconductor ecosystem, engineering talent, geopolitical neutrality and expertise in OSAT, advanced packaging and photonics.

HLIB Research is more bullish, maintaining an “overweight” stance on the Malaysian technology sector on the back of a broadening semiconductor upcycle and sustained earnings momentum.

Its top hardware picks are UWC, Inari and Unisem, where customer capacity expansions are supporting visible volume ramps and potential earnings upgrades.

Beyond hardware, HLIB Research sees ITMAX System Bhd as an emerging application-layer beneficiary, with its proprietary closed-circuit television data and smart-city platform offering potential for AI monetisation.

The main risk across the sector remains currency. Malaysian technology companies, particularly OSAT players, are sensitive to ringgit appreciation against the US dollar.

CIMB Research estimates that every 10% appreciation in the ringgit could reduce OSAT earnings by 30% to 40% on average, while EMS players are less exposed because currency movements can largely be passed through to customers.

Trade policy also remains a watch point.

A proposed 15% US tariff on imported polysilicon products could raise upstream material costs and add supply-chain uncertainty, although TA Research expects the direct impact on Malaysia to remain limited because of the country’s low exposure to upstream polysilicon production.

At the same time, the measure could encourage further diversification of semiconductor manufacturing away from China, potentially strengthening Malaysia’s role in the global supply chain.

For the 2H26, CIMB Research identifies an earnings upgrade cycle, possible technology-stock inclusion if the FBM KLCI expands, ringgit depreciation against the US dollar and election-year domestic demand uncertainty as potential re-rating catalysts.

“Together, these factors point to sustained investor sentiment and potential price-to-earnings multiple expansion in the sector,” it argues.